Should-Read: Lars Svensson: Leaning against the wind: Re-evaluating the evidence

Should-Read: Lars Svensson: Leaning against the wind: Re-evaluating the evidence: “‘Leaning against the wind’ refers to conducting, for financial-stability purposes…

…a tighter monetary policy (i.e. setting a higher policy interest rate) than would be justified by standard flexible inflation targeting if policymakers disregarded the possibility of a financial crisis. It has been promoted by the Bank for International Settlements (BIS 2014). Regarding the costs and benefits of leaning against the wind, an IMF Staff Report concluded that, “based on current knowledge, the case for leaning against the wind is limited, as in most circumstances costs outweigh benefits” (IMF 2015)…